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This Meaningful Metric Can Protect Your Portfolio

Brand value is intangible, but important to your investments.

Editor's note: A previous version of this article misstated that ING Direct's "Orange" savings account brand came in at 36 on WPP's list of most valuable brands; WPP's list actually refers to France Telecom's "Orange" brand. We regret the error.

The strongest stocks involve much more than share prices or numbers on a financial statement. Some of their value isn't really quantifiable in numbers at all. Recognizing the importance of brands, and jettisoning weak ones from your portfolio, can help you protect your investment returns.

In May, Apple(Nasdaq: AAPL) usurped Google's (Nasdaq: GOOG) crown for the most valuable brand for 2011. But while news headlines screamed about this competitive coup, investors must block out that noise and remind themselves that the big picture has nothing to do with whether Apple or Google is No. 1.

Amazon.com(Nasdaq: AMZN) elbowed Wal-Mart(NYSE: WMT) out of the way to become the top retail brand on the list for 2011. Chinese search engine Baidu(Nasdaq: BIDU) generated a 141% increase in brand value, vaulting it to No. 29 from its No. 75 position last year. And as much as Mark Zuckerberg takes his share of heat, Facebook still surged 246% in brand value, making its debut at No. 35.

What consumers wantHere are the top five most valuable brands of the 100 Millward Brown ratings:

Apple

Google

IBM

McDonald's

Microsoft

These are immediately recognizable tech stocks and blue chip companies. Some of them even elicit something close to "love" from their fans. (I'm looking at you, Apple.)

The most valuable brands reflect new trends in consumption habits. Millward Brown described new media messages that many top brands' identities now embrace:

Assertion of individuality: Consumers desired a sense of personal expression from the products they own.

Concern for health and wellness: Across demographic groups, shoppers paid more attention to what they put in and on their bodies.

Concern about the environment: Millward Brown described being "green" as a "hygiene factor" in several categories -- perhaps best illustrated by hybrid and electric cars' popularity.

Concern about product provenance: Shoppers wanted to feel good about the products they purchased, and to know that their product didn't harm others' well-being.

Bad brands hurtThis may sound awfully close to the emotional responses investors are supposed to avoid. Furthermore, even though WPP attaches a "valuation" to these megabrands, they're still intangible assets that are difficult to quantify.

Regardless, tracking strong, positive brand perceptions can help you find great investments, while tarnished brands can erode customer goodwill and financial success.

Although several of the big corporate "baddies" clung to their positions in the top 100 list, they lost some traction in the last year. BP, Bank of America, and Goldman Sachs lost 27%, 43%, and 9% of their brand value, respectively. These companies face a lot of risk from their unloved status.

Speaking of financial companies, Capital One's (NYSE: COF) recent $9 billion acquisition of ING's (NYSE: ING) ING Direct USA could end up illustrating just how much a negative brand hurts. Loyal ING Direct users are already ranting about their fears of the ramifications of Capital One's acquisition; The New York Times even published Capital One's responses to the uproar. My Foolish colleague Matt Koppenheffer publicly worried that Capital One may ruin ING -- and followed up with thoughts on ING customers' publicly posted ire about the deal.

Capital One's $9 billion purchase price could prove far too dear if ING loses its stellar customer-centric reputation (and many of its depositors) simply by association with Capital One. Had Capital One run its business differently over the years, ING customers might not have immediately expressed such massive mistrust.

The good, the bad, and the uglyAnnual brand rankings give investors valuable clues about the best (and the rest). They also provide hints about brands that risk losing competitive traction.

Check back atFool.comevery Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.

The Motley Fool owns shares of Wal-Mart, Apple, Microsoft, Google, Bank of America, and IBM, and has also opened a short position on Bank of America. Motley Fool newsletter services have recommended buying shares of Amazon.com, Wal-Mart, Microsoft, Google, McDonald's, Baidu, and Apple; creating diagonal call positions on Wal-Mart and Microsoft; and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days.

Author

Alyce Lomax is a columnist for Fool.com specializing in environmental, social, and governance (ESG) issues and an analyst for Motley Fool One. From October 2010 through June 2015, she managed the real-money Prosocial Portfolio, which integrated socially responsible investing factors into stock analysis. Follow @AlyceLomax